As demand softens, the retail product mix needs to attract both value seekers and premium buyers
Port Washington, N.Y., May 9, 2022 – The consumer’s willingness to spend has been crucial to maintaining a healthy level of retail performance throughout the pandemic, but demand has been softening for several months. April 2022 U.S. general merchandise unit sales were 7% lower than a year ago, creating a 1% decline in sales revenue, according to The NPD Group.
“Higher retail prices have buffered demand declines but their escalation, combined with rising gas prices, the end of stimulus payments, and the general uncertainty surrounding current economic and world events, are factors on the minds of many consumers,” said Marshal Cohen, chief retail industry advisor for NPD. “Now retailers are faced with a consumer base that has more complex financial dynamics influencing their inclination to spend.”
Differences in household spending that emerged in 2021, as prices rose and spending among lower-income consumers was no longer bolstered by stimulus checks, will become more pronounced this year. As the pandemic has worn on, higher-income consumers have played an even more significant role in the ongoing growth of retail sales.
Consumers at the upper end of the income spectrum will be less likely to feel the pinch of rising grocery and gas prices and other macroeconomic forces. These conditions will affect lower-income consumers more than high-income consumers, which is likely to be amplified by smaller tax refunds for families that took advantage of last year’s child tax credits.
While some consumers might be getting smaller refunds this year, many still plan to allocate that money toward retail purchases. In a recent survey, the consumers who received a tax refund by March 2022 identified general household expenses, concerts and other experiences outside the home, fashion products (including clothing, footwear, accessories), technology products, and shoring up savings as the top ways they planned to use their refunds.
Three-quarters of consumers said that current world events and economic factors influenced the way they think about travel and transportation, as well as how they shop for goods. As of April 2022, two-thirds indicated they would scale back their driving, travel plans, and retail spending.
“Today’s consumer behavior is multi-dimensional so a varied retail approach will be needed in the coming months,” Cohen said. “For lower- and middle-income consumers feeling more economic uncertainty, retailers and manufacturers need to sharpen the value side of their product offerings, while also providing higher-income consumers with products that will motivate them to spend rather than save.”